Are you among the 52% of agencies without a perpetuation plan?

March 20, 2017

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As we approach tax season, that old Benjamin Franklin saying comes to mind: "In this world, nothing can be said to be certain, except death and taxes." Franklin identified two things we'd rather not think about. We are nudged into thinking about taxes every year, but we'd all prefer not to think about our own demise. And if the recent survey on agency perpetuation plans is to be credited, more than half of all agency owners avoid thinking about the possibility of their own demise because they do not have succession plans in place.

As we approach tax season, that old Benjamin Franklin saying comes to mind: “In this world, nothing can be said to be certain, except death and taxes.” Franklin identified two things we’d rather not think about. We are nudged into thinking about taxes every year, but we’d all prefer not to think about our own demise. And if the recent survey on agency perpetuation plans is to be credited, more than half of all agency owners avoid thinking about the possibility of their own demise because they do not have succession plans in place.

It’s an ironic twist of “the shoemaker’s kid goes barefoot” variety: Agents who excel at persuading clients to protect their assets and their families through Life Insurance are often lax about protecting their own business assets through a perpetuation plan. In a recent agent survey, only 48% of the participating respondents said they had a perpetuation plan in place. The far-ranging agent survey was conducted by National Underwriter, the National Association of Professional Insurance Agents (PIA) and Flaspöhler.

“It’s an alarming statistic, considering that the average age of those respondents is between 50 and 59, and 92.2% of them identified themselves as either an agency principal or owner, mostly the latter.”

But even those agencies with a plan may not be planning for all contingencies, as Mike Manes notes in his reminder: Agency Succession Plans: Do It Now! Many unexpected things can go wrong:

Bill was a 40-something-year-old son in his 70-something-year-old father’s agency. I asked about the agency’s succession plan. He said, “Mike, I’m already running the agency by myself. When Dad dies, nothing changes.” He assumed too much…

With a smile and good intentions, I hit him with reality. I asked simply, “What if you die first?” His stunned look told me that he had never considered that possibility.

If you missed it, NU featured an excellent series on agency perpetuation: What’s YOUR Succession Plan? It’s an informative overview of the subject – don’t miss the segment that quotes our own Renaissance Alliance member Chris Paradiso discussing the topic and the steps he took to ensure that his agency has a working succession plan.

The article points to the importance of recruiting the next generation in any future planning:

“This sense of unpreparedness speaks to a larger issue: The pressing need for the insurance industry to redouble its efforts toward attracting, recruiting and mentoring young talent. The industry’s pathway to its future can no longer be a rope bridge: If the insurance business is to perpetuate itself and thrive, training the next generation of those who will someday lead it is critical—and a shared responsibility at both the carrier and agency levels. Owning up to that sense of responsibility—to yourself, your family and the industry—starts with deciding who your successors will be.”

It also discusses the importance of properly valuating one’s agency in any succession plan and urges owners to “think of perpetuation not as an event, but as a process that ideally should be considered even at the launch of the business.”

Tim Cunningham, a senior practitioner and partner at OPTIS Partners, an investment banking and financial consulting firm in Chicago that serves the insurance distribution industry, says that “Four elements are involved, using the acronym PACT: People, Agency Value, Capital Discipline and Time.”

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